So many students will graduate from Slippery Rock University this spring that administrators have had to limit the number of guests each one can invite.

There isn't enough room in the basketball arena for everybody.

At a time when American higher education is under fire for dismal graduation rates that have eroded the nation's leadership in college degree-holders, this public university in western Pennsylvania will graduate a record number of students, and do so more quickly than in years past.

That's because Slippery Rock has built in aggressive new measures to help students succeed  and eliminated many obstacles that make success so elusive almost everywhere else.

It lowered the number of credits required to graduate, which, as at many other schools, had been creeping up and keeping students in school longer. It trained residence-hall staff to watch for signs of academic or personal problems such as absences or poor grades. It clustered students with the same majors in dorms so they can help one another with class work, and hired 90 peer tutors to run a tutoring center in the library.

Altruism alone didn't compel the university to take these steps. It was money  $1.5 million a year, to be exact.

Slippery Rock may be the poster child for a resurgent idea called "performance funding," which pays public universities to meet goals set by increasingly results-conscious state legislatures.

Under Pennsylvania's performance-funding formula, Slippery Rock has earned as much as $1.5 million a year more from the state for improving its outcomes than it would have otherwise, said provost William Williams.

"Whether you like this method or not, the purpose was to drive up the quality of this institution," Williams said. "It's what we should have been about anyway."

Yet, until now, public universities and colleges were largely given money based on how many students they enrolled, not how many actually graduated.

The schools didn't focus on success, said Williams, "because they didn't have to."

When performance funding was first tested in the 1990s, many universities resisted it, "gamed" the numbers or even cheated, research by the Community College Research Center (CCRC) at Teachers College, Columbia University, and others has found.

But tight budgets have prompted dozens of states to try the idea again. And universities are coming around to it.

That's because performance funding no longer just involves vying for cash bonuses above and beyond universities' annual budgets. Now universities are competing for their share of dwindling state allocations.

"It's not the cherry on top anymore," says Travis Reindl, a higher-education researcher for the National Governors Association. "It's the base."

The Obama administration also wants to use money as a motivator. It has proposed a $1 billion competition, modeled after the Race to the Top program, to reward universities for becoming more affordable and raising graduation rates, and to withhold federal financial aid from universities that raise tuition too quickly.

"This has really burst back onto the scene," said Stan Jones, former Indiana commissioner of higher education and now president of Complete College America, which pushes states to improve graduation rates. Only 55 percent of students at four-year universities graduate within six years, according to the National Center for Education Statistics. And, the United States has fallen to 16th in the world in the proportion of 25- to 34-year-olds with a college or university degree, the Organization of Economic Cooperation and Development reports.

The first round of performance funding began in 1979 in Tennessee. Twenty-five more states joined the movement in the 1990s and early 2000s, when healthy tax revenues enabled them to give financial bonuses to universities and colleges for meeting certain goals. But as the money dried up, one state after another abandoned the idea.

A revival began in 2007, led by Washington and Indiana. The portion of public-university budgets tied to performance, or that will eventually be tied to performance, varies from state to state, ranging from 6.5 percent in Indiana to 45 percent for technical colleges in Texas.

"Through performance funding we will show that each dollar we spend on higher education provides a greater return than if the dollar were spent on one of the numerous other competing worthy causes," the Illinois Board of Higher Education pronounced. "We know we must be able to demonstrate that we can deliver a return on investment."

State strategies vary. In Indiana, university budgets will be based on four things: the number of students who complete courses (instead of the number who enroll); the time it takes students to earn degrees; the number of degrees awarded; and the number of degrees earned by low-income students.

Ohio's performance goals for universities include making it easier for students to transfer credits, and limiting the number of credits required to graduate. Tennessee will allocate state money for higher education based on such metrics as the number of students reaching milestones of 24, 48, and 72 credits. Louisiana will tie part of universities' budgets to successes in improving graduation and job-placement rates, among other measures. And Texas already rewards universities for increasing the number of degrees awarded, and enrolling older, low-income and at-risk students who score below national averages on the SAT or ACT.

Various performance funding strategies are also under way, planned or being considered in Arkansas, Colorado, Connecticut, Maryland, Massachusetts, Missouri, North Dakota, Oregon, South Carolina, Virginia and West Virginia.

Rather than continuing to give money to universities based on how many seats they fill, Jones said, "It's astonishing that, after 60 or 70 years, [states have] finally got around to the point of saying, 'Okay, did anybody graduate?' "

Now some states are also imposing penalties based on performance. When Indiana cut the budgets of its universities and colleges, it made deeper cuts for those with higher per-student costs and lower graduation rates.

In Ohio, the average time it took to earn a bachelor's degree fell. Pennsylvania reported fewer dropouts, higher graduation rates, more diversity and higher faculty productivity. Texas saw a 9.3 percent increase in the number of degrees awarded.

Academic strategies also shifted. Tennessee universities increased tutoring and advising. Community colleges in Washington eliminated fees for degrees or certificates, which had prevented some students from graduating. In Florida, community colleges monitored withdrawal rates to weed out and retrain faculty whose courses students most commonly dropped.

At Slippery Rock, the proportion of students who graduate within four years has jumped to almost 38 percent (from below 22 percent), and within six years to nearly 58 percent (from below 52 percent).

"That's a significant change in the success of our students," said Williams, the provost. "You have to recalibrate your entire campus to remember that the reason they're here is for your students to be successful."

There are plenty of critics of performance funding. If universities get money based on their success rates, critics say, they're unlikely to admit marginal students who have potential but may have trouble graduating. To keep the money coming in, these critics say, universities might lower standards to make it easier to earn degrees.

In fact, one CCRC study reported that several university branch campuses in Ohio categorized rising juniors as transfer students to meet performance-funding targets. A faculty member at a Florida community college reported being told to push students into more courses than they needed, so the school would get extra performance points. In several states, faculty reported being pressured to avoid giving failing grades, while admissions counselors said they were instructed to reject marginal students.

Education analysts also say that universities with different missions and resources shouldn't all be forced to meet the same goals.

"What you're doing is you're taking a university, which is a very complex enterprise, and you're attempting to boil it down into a few quantifiable metrics," Harnisch said.

And some things, educators say, are beyond their control.

"This seems to be a way of saying, well, by putting pressure on colleges and universities, we'll force them to be better managers, and that will make the problems go away," said Garrison Walters, former executive director of the South Carolina Commission on Higher Education and interim chancellor of the Ohio Board of Regents. "Trashing the structure and management of American higher education as a way of making a point about costs damages the infrastructure that's intrinsic to the solution."

For now, though, as universities start to make the changes required by performance funding, some are even using money to motivate faculty and students. Slippery Rock, for instance, promises money for travel, conferences and lab equipment to departments that hire faculty who meet Pennsylvania's performance-funding targets for diversity and for new professors to have particular credentials.

Ball State University, in Indiana, gives a $500 scholarship to every in-state student on track to earn a degree within four years. It also has cut tuition in summer classes by 18 percent to keep students moving through.

"We were trying to create some financial incentives," said Jo Ann Gora, Ball State's president. Not to mention, she said, that anything that raises the four-year graduation rate "will ultimately help us with performance funding."

This story was produced by The Hechinger Report, a nonprofit, nonpartisan education-news outlet based at Teachers College, Columbia University.